Basics of How to Prepare a Balance Sheet
Regardless of the type of business or industry it is for, every balance sheet is divided into three main parts:
- Assets – Assets are anything that have value. A dollar value is assigned to everything a company owns and it is recorded on the asset side of the balance sheet.
- Liabilities – Anything that costs a company money is a liability. Monthly rent payments, utility bills, a mortgage, corporate credit card debt and anything else a company has to pay is a liability, and is recorded on the liability side of the balance sheet.
- Shareholder equity – The difference between assets and liability is the shareholder equity. This is the “book value” of a company which is what is left for shareholders after all debt is paid.
The total value of all assets on a balance sheet must be equal to the combined value of the all liabilities and shareholder equity on the sheet. How to analyze a balance sheet depends on what it is you wish to determine.
How to Analyze a Balance Sheet
A variety of different formulas can be used for analyzing a balance sheet equation. The following are some methods on how to analyze a balance sheet using different balance sheet ratios:
- Solvency ratios – Analysis of ability to pay short term debt.
- Quick Ratio = (Current Assets – Inventories) / Current Liabilities
- Current Ratio = Current Assets / Current Liabilities
- Debt-equity ratios – Analysis of how growth is being financed. Provides information on financial strength.
- Total Debt/Equity Ratio = Total Liabilities / Shareholders Equity
- Long Term Debt/Equity Ratio = Long Term Debt / Shareholders Equity
- Short Term Debt/Equity Ratio = Short Term Debt / Shareholders Equity
- Activity ratios – Measures a company’s ability to convert assets balance sheet into cash or sales and shows how efficient and well run a company is.
- Days Sales Outstanding = (Receivables / Revenue) x 365
- Days Inventory Outstanding = (Inventory / COGS) x 365
- Days Payable Outstanding = (Accounts Payable / COGS) x 365
If you don’t know how to analyze a balance sheet, the company analysis service we provide can do it for you.
Use Our Service for Balance Sheet Analysis
The company analysis services we offer include balance sheet analysis or help with accounting homework you may require. Our professional company analysts have the experience and knowledge that makes them well qualified to perform virtually any type of analysis necessary. Still wondering whether we your best variant? Just remember that:
- Our specialists have been helping students with accounting homework for a couple of years already
- We don’t just complete the orders anyhow; we always focus on quality and correctness
- You will be given your money back if we don’t meet your requirements
- The services are available around the clock and we do take rush orders
If you don’t know how to prepare a balance sheet, contact us and benefit from our company analysis expertise!
